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ch03 The Accounting Information Sysytem
ch03 The Accounting Information Sysytem
3
THE ACCOUNTING
INFORMATION SYSTEM
3-3
The Accounting Information System
The
Steps in the
Accounting Recording The Trial
The Account Recording
Transactions Process Balance
Process
Illustrated
3-4
The Accounting Information System
3-5
Accounting Transactions
3-6
Accounting Transactions
Record/ Don’t
Record
3-7
Accounting Transactions
Analyzing Transactions
The process of identifying the specific effects of economic
events on the accounting equation.
Stockholders’
Assets = Liabilities + Equity
3-8 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
Analyzing Transactions
Illustration 3-2
Expanded accounting equation
3-9 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
Illustration: 1. On October 1, cash of $10,000 is invested in Sierra
Corporation by investors in exchange for $10,000 of common stock.
1. +10,000 +10,000
3-10 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
2. On October 1, Sierra borrowed $5,000 from Castle Bank by signing
a 3-month, 12%, $5,000 note payable.
1. +10,000 +10,000
2. +5,000 +5,000
3-11 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
3. On October 2, Sierra purchased equipment by paying $5,000 cash
to Superior Equipment Sales Co.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
3-12 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
4. On October 2, Sierra received a $1,200 cash advance from R.
Knox, a client.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
4. +1,200 +1,200
3-13 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
5. On October 3, Sierra received $10,000 in cash from Copa Company
for guide services performed.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
4. +1,200 +1,200
5. +10,000 +10,000
3-14 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
6. On October 3, Sierra Corporation paid its office rent for the month
of October in cash, $900.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
4. +1,200 +1,200
5. +10,000 +10,000
6. -900 -900
3-15 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
7. On October 4, Sierra paid $600 for a one-year insurance policy that
will expire next year on September 30.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
4. +1,200 +1,200
5. +10,000 +10,000
6. -900 -900
7. -600 +600
3-16 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
8. On October 5, Sierra purchased supplies on account from Aero
Supply for $2,500.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
4. +1,200 +1,200
5. +10,000 +10,000
6. -900 -900
7. -600 +600
8. +2,500 +2,500
3-17 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
10. On October 20, Sierra paid a $500 dividend.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
4. +1,200 +1,200
5. +10,000 +10,000
6. -900 -900
7. -600 +600
8. +2,500 +2,500
10. -500 -500
3-18 SO 1 Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
11. Employees have worked two weeks, earning $4,000 in salaries,
which were paid on October 26.
1. +10,000 +10,000
2. +5,000 +5,000
3. -5,000 +5,000
4. +1,200 +1,200
5. +10,000 +10,000
6. -900 -900
7. -600 +600
8. +2,500 +2,500
10. -500 -500
11. -4,000 -4,000
3-19
3-20
The Account
3-21 SO 2 Explain what an account is and how it helps in the recording process.
The Account
3-22 SO 3 Define debits and credits and explain their use in recording business transactions.
Debit and Credit Procedures
Account Name
Debit / Dr. Credit / Cr.
Balance $15,000
3-23 SO 3 Define debits and credits and explain their use in recording business transactions.
Debit and Credit Procedures
Account Name
Debit / Dr. Credit / Cr.
Balance $1,000
3-24 SO 3 Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Assets and Liabilities
Assets
Debit / Dr. Credit / Cr.
Assets - Debits should
exceed credits.
Normal Balance
Chapter
Liabilities – Credits should
3-23
exceed debits.
Liabilities
Debit / Dr. Credit / Cr. The normal balance is on
the increase side.
Normal Balance
Chapter
3-24
3-25 SO 3 Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Stockholders’ Equity
3-26 SO 3 Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Revenue and Expense
3-27 SO 3 Define debits and credits and explain their use in recording business transactions.
Stockholders’ Equity Relationships
Illustration 3-15
3-28
SO 3 Define debits and credits and explain their use in recording business transactions.
Summary of Debit/Credit Rules
Liabilities
Debit / Dr. Credit / Cr.
Normal Normal
Balance Balance
Debit Credit Normal Balance
Assets Chapter
Stockholders’ Equity
3-24
Normal Balance
Normal Balance
Chapter
Expense
3-23
Revenue
Chapter
3-25
Normal Balance
Normal Balance
Chapter
3-27 Chapter
3-26
3-29 SO 3 Define debits and credits and explain their use in recording business transactions.
Summary of Debit/Credit Rules
Debit
Credit
3-30 SO 3 Define debits and credits and explain their use in recording business transactions.
Summary of Debit/Credit Rules
Basic
Assets = Liabilities + Stockholders’ Equity
Equation
Expanded
Basic
Equation
3-31 SO 3 Define debits and credits and explain their use in recording business transactions.
Summary of Debit/Credit Rules
Review Question
Debits:
a. increase both assets and liabilities.
3-32 SO 3 Define debits and credits and explain their use in recording business transactions.
Summary of Debit/Credit Rules
Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
3-33 SO 3 Define debits and credits and explain their use in recording business transactions.
3-34
Steps in the Recording Process
Illustration 3-17
The Journal
Book of original entry.
Transactions recorded in chronological order.
Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the debit
and credit amounts can be easily compared.
3-36 SO 5 Explain what a journal is and how it helps in the recording process.
The Journal
3-37 SO 5 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 1 Cash 10,000
Common stock 10,000
3-38 SO 5 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 1 Cash 5,000
Notes payable 5,000
3-39 SO 5 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 2 Equipment 5,000
Cash 5,000
3-40 SO 5 Explain what a journal is and how it helps in the recording process.
3-41
Steps in the Recording Process
3-42 SO 6 Explain what a ledger is and how it helps in the recording process.
Steps in the Recording Process
3-43 SO 6 Explain what a ledger is and how it helps in the recording process.
Steps in the Recording Process
Posting – the process of transferring amounts from the
journal to the ledger accounts.
General Journal J1
Date Account Title Ref. Debit Credit
Oct. 1 Cash 101 10,000
Common stock 10,000
General Ledger
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
Oct. 1 Owner investment J1 10,000 10,000
3-44 SO 7
Steps in the Recording Process
Review Question
Posting:
a. normally occurs before journalizing.
3-45 SO 7 Explain what posting is and how it helps in the recording process.
The Recording Process Illustrated
Illustration 3-21
3-46 SO 7 Explain what posting is and how it helps in the recording process.
The Recording Process Illustrated
Illustration 3-22
3-47
SO 7 Explain what posting is and how it helps in the recording process.
The Recording Process Illustrated
Illustration 3-23
3-48
SO 7 Explain what posting is and how it helps in the recording process.
The
Recording
Process
Illustrated
Additional
Transactions
Illustration 3-24
3-49 SO 7 Explain what posting is and how it helps in the recording process.
The
Recording
Process
Illustrated
Additional
Transactions
Illustration 3-25
3-50 SO 7 Explain what posting is and how it helps in the recording process.
The
Recording
Process
Illustrated
Additional
Transactions
Illustration 3-26
3-51 SO 7 Explain what posting is and how it helps in the recording process.
The
Recording
Process
Illustrated
Additional
Transactions
Illustration 3-27
3-52
The
Recording
Process
Illustrated
Additional
Transactions
Illustration 3-28
3-53 SO 7 Explain what posting is and how it helps in the recording process.
The Recording Process Illustrated
Additional Transactions
Illustration 3-29
3-54 SO 7 Explain what posting is and how it helps in the recording process.
The
Recording
Process
Illustrated
Additional
Transactions
Illustration 3-30
3-55 SO 7 Explain what posting is and how it helps in the recording process.
The
Recording
Process
Illustrated
Additional
Transactions
Illustration 3-31
3-56
SO 7
Summary Illustration of Journalizing
Illustration 3-32
3-57 SO 7 Explain what posting is and how it helps in the recording process.
Summary Illustration of Journalizing
Illustration 3-32
3-58 SO 7 Explain what posting is and how it helps in the recording process.
Summary
Illustration
of Posting
Illustration 3-33
3-59 SO 7 Explain what posting is and how it helps in the recording process.
The Trial Balance
A list of accounts and their balances at a given time.
Purpose is to prove that debits equal credits.
Illustration 3-34
3-60
The Trial Balance
Review Question
A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to
Supplies and credited to Cash.
c. a $100 cash dividends is debited to the Dividends
account for $1,000 and credited to Cash for $100.
d. a $450 payment on account is debited to Accounts
Payable for $45 and credited to Cash for $45.
3-64
Key Points
In deciding whether the United States should adopt IFRS,
some of the issues the SEC said should be considered
are:
3-65
Key Points
Some of the issues the SEC said should be considered are:
3-67
Which statement is correct regarding IFRS?
3-68
A trial balance:
3-69
One difference between IFRS and GAAP is that:
3-70
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